Licensees have been under pressure to evolve for several years, with advisers increasingly voting with their feet if their AFSL doesn’t offer the right support or match their values.
The stress on licensees has seen hundreds fold over the past couple of years, with declines in almost every segment of the market, our analysis shows.
However, some parts of the market have lost a greater number of licensees and advisers than others. For example, the number of limited licensees has dropped 32 per cent in two years, while diversified licensees have decreased 22 per cent, while stockbroker licensees have fallen 15 per cent over the same period.
However, the most noticeable trend has been in the bank sector, which has made a swift exit from advice following the royal commission and the scandals that pre-empted it. The already small number of bank licensees has fallen 59 per cent in two years as banks made their exit from advice. Advisers licensed by banks fell from 3900 in January 2019 to 575 in July 2021. Bank-licensed advisers now make up just three per cent of the adviser universe.
Banks’ losses have been private licensees’ gains, as the post-royal commission demand for autonomy drove a decisive shift towards the private licensing model. The mid-sized privately-owned licensee has bucked the general trend with 11 per cent growth in the past two years, but private licensees of all sizes have gained advisers. In fact, large, private licensees now oversee almost a fifth (19 per cent) of the adviser universe.
Advisers per Licensee Segment (%)
Source: AR Data
Our survey of licensees shows the growth segment – mid-tier licensees - is also the segment most satisfied with profitability. Conversely, large, privately-owned licensees are considerably less satisfied with their profitability.
Licensee satisfaction with profitability
Source: Adviser Ratings' Australian Financial Advice Landscape Report 2020
The evolving role
With institutional licensees in rapid decline, the government’s plan to introduce a new regulatory framework has prompted renewed questions about the future role of licensees beyond the APL and insurance.
As advisers face increased time demands from education standards, CPD, practice management and client acquisition, there is a greater demand on licensees to offer additional value elsewhere.
Our research shows most licensees offer PI insurance and regulatory liaisons, but around half offer business growth support or paraplanning. Support around growth and profitability are becoming desired add-on services.
Advisers also tell us they were looking to licensees to foster collaboration and community within the emerging profession before COVID, but such efforts have been hamstrung by a series of lockdowns across all states and territories.
Given advisers are showing little hesitation about moving licensees in a shrinking market, the onus will be on licensees to prove their new value proposition to advisers – or risk losing them.